Phil Woolas has given up his battle against becoming the first MP for almost a century to lose his seat for lying about an opponent.

A by-election will be held on 3 February in the former Labour MP's seat of Oldham East and Saddleworth, The Independent understands. Campaigning in the former immigration minister's seat could be given an extra edge by the participation of Nick Griffin. The British National Party leader wrote on the social networking site Twitter yesterday: "Our local organiser well up for it, with me as candidate."

The by-election will be a significant test of the three main parties' popularity following the Coalition Government's austerity package, but will also be overshadowed by the controversy surrounding Mr Woolas's vitriolic general election campaign against his Lib Dem rival.

The former minister scraped home by just 103 votes after claiming before polling day that his opponent, Elwyn Watkins, had failed to condemn extremist attacks and had "wooed" Islamist radicals. The Greater Manchester constituency has a history of racial tensions.

After the Liberal Democrats complained about the tactics, a specially-convened election court declared the result void, removed Mr Woolas as an MP, and banned him from standing for Parliament for three years. Labour immediately suspended him from the party and said it would not support his attempts to overturn the decision.

Mr Woolas was forced to go it alone – and now faces a massive bill for legal expenses after the original court's decision was upheld at the High Court. His challenge had been fast-tracked to ensure the constituency did not go too long without an MP.

Lord Justice Thomas, Mr Justice Tugendhat and Mrs Justice Nicola Davies agreed that there had been "illegal practice" by Mr Woolas in that he had gone beyond political argument to attack his opponent's character. Mr Woolas, who was in court for the judgment, said there was no mechanism open to him to challenge the decision, adding: "It is the end of the road. I am out."

Labour plans to move the writ for the by-election to 3 February – among the earliest dates it can be held.